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Pullback In Oil Helps EGBs Find A Floor

EGBS
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The pullback in Brent crude prices has seemingly helped Bunds off intraday lows, though contracts remain -71 ticks today.

  • As noted in earlier posts, the stronger-than-expected US Q1 ECI data provided the latest source of pressure to global core FI markets.
  • EGBs specifically were already weakened by this morning’s supply calendar and the higher-than-expected April flash core inflation reading.
  • ECB-dated OIS contracts have pared back rate cut expectations through the day, with 65bps of cuts priced through the remainder of ’24 (vs 72bps this morning). This represents a new hawkish extreme for the current cycle.
  • That has allowed the German cash curve to bear flatten, with yields 3 to 7bps higher at typing.
  • 10-year periphery spreads to Bunds are generally a touch tighter with the exception of Italy, which sits a touch wider.
  • A reminder that the majority of European countries will be celebrating the Labour Day holiday tomorrow, which may affect liquidity and volumes throughout the day.
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The pullback in Brent crude prices has seemingly helped Bunds off intraday lows, though contracts remain -71 ticks today.

  • As noted in earlier posts, the stronger-than-expected US Q1 ECI data provided the latest source of pressure to global core FI markets.
  • EGBs specifically were already weakened by this morning’s supply calendar and the higher-than-expected April flash core inflation reading.
  • ECB-dated OIS contracts have pared back rate cut expectations through the day, with 65bps of cuts priced through the remainder of ’24 (vs 72bps this morning). This represents a new hawkish extreme for the current cycle.
  • That has allowed the German cash curve to bear flatten, with yields 3 to 7bps higher at typing.
  • 10-year periphery spreads to Bunds are generally a touch tighter with the exception of Italy, which sits a touch wider.
  • A reminder that the majority of European countries will be celebrating the Labour Day holiday tomorrow, which may affect liquidity and volumes throughout the day.